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Last Updated: Thursday, 23 December, 2004, 12:50 GMT
Q&A: The battle for Yukos
Yukos petrol station in Moscow
Yukos's future looks bleak
Russia's Yukos, which accounts for one-fifth of the country's oil output, looks to be running out of options in its long-running battle with the government.

It has lost control of a key production unit and analysts are predicting that its complete break up may only be a matter of time.

What is the latest news?

State-owned oil company Rosneft said it has acquired Baikal Finance Group, Sunday's surprise winner at an auction of Yuganskneftegas, the production division of Yukos.

Rosneft said buying Baikal is part of its plan to build a "balanced, national energy corporation". The move will give it about 16% of Russia's total oil output.

Why has it happened?

Mikhail  Khodorkovsky in prison
Yukos leading shareholder Mikhail Khodorkovsky remains behind bars

Russian president Vladimir Putin said on Thursday that he is correcting a period of "cowboy capitalism" in the 1990s following the collapse of the Soviet Union.

Many Russians feel that the country's key assets were sold off too cheaply, turning those close to the privatisations into some of the world's richest people.

This has bred resentment among many Russians and raised concerns that the state controls too little of its key resources.

As well as that, Yukos put itself in the firing line when then boss Mikhail Khodorkovsky dabbled in politics.

Once Russia's richest man, he is now sitting in a jail cell awaiting trial on fraud and tax charges, while Yukos is being broken up to pay a bill of $27bn in unpaid taxes and fines.

Why has Rosneft suddenly got involved

The firm is 100% state-owned, giving it a certain amount of protection from international law.

By selling Baikal to Rosneft, authorities hope to sidestep legal actions that Yukos and its main shareholders have threatened to take in the US and in Russia.

"You cannot sue the Russian government," said Eric Kraus, a strategist at Moscow's Sovlink Securities. "The Russian government has sovereign immunity."

Are any other firms involved?

Yes, Gazprom, the world's largest gas company and favourite to win the bidding for Yuganskneftegas on Sunday.

Gazprom was forced to sit out the auction after Yukos won a court injunction in the US.

Yukos oil tanks
Russia is again eyeing key assets

At the time, Baikal was thought to be a front for Gazprom, though Gazprom has since denied any involvement.

Analysts said that the firm is keen to distance itself from the auction because of concerns that it will be caught up in protracted and messy legal battles.

The gas giant is still a key player, however, as it had earlier agreed to merge with Rosneft.

Analysts expect this merger will go ahead, but are unwilling to say when it will take place.

They add that the increased value of Rosneft following its purchase of Yuganskneftegas makes it likely the state will end up with about 65% of the new company.

What now for Yukos?

The company has vowed to fight.

It has filed for Chapter 11 bankruptcy protection in the US and said that whoever bought Yuganskneftegas was picking up a "serious $9bn headache".

The firm wants to recover $20bn in damages and shareholders have vowed to make life difficult for anyone who buys Yukos assets.

Meanwhile, reports from Russia say Yukos may well file for bankruptcy.

Analysts say that it is difficult to predict when or whether Yukos will demise, but it is looking more and more likely that the company will cease to exist.

They point to the fact that Russia is unlikely to bow to international pressure over the company's break up and that without its key oil unit Yukos is a far less attractive prospect for investors.

On top of that, and despite Yukos's tough talk, analysts are pessimistic about the firm's chances in the courts.

Legal wranglings probably will only delay the merger of Gazprom and Rosneft, rather than halt it entirely, they say.

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